High Dollar and Equities, Disinflation, and Gold Prices

London (Nov 12)  The U.S. Comex gold futures fell 0.15% last week, recovering from the larger decline earlier in the week. In the past two days, the gold futures fell a further 0.58% to end at $1,163 on Tuesday. The Dollar Index has climbed three weeks in a row although the ascent has stalled this week.

The Japanese Yen dropped to a seven-year low of 115.78 on Tuesday. The S&P 500 Index has risen 0.39% in the past two days to reach a record high of 2,039.68. The Euro Stoxx 50 Index has recovered 1.32% this week. The crude oil futures continued to be volatile this week after plunging 2.35% last week.

Disinflation

Some analysts are predicting that next year’s iron ore prices could plunge below $60 per metric ton. The weaker commodity demand from a slowing China and the higher supply have pushed down commodity prices from iron ore to oil, causing the Producer Price Index (PPI) in many countries to be negative. China’s October year-on-year PPI was minus 2.2% while the consumer price index was 1.6%, the lowest level since the end of 2009. In the U.S., the non-farm payrolls climbed over 200,000 for nine consecutive months, adding 214,000 in October. The unemployment rate fell to a six-year low of 5.8%.

Gold Trust Assets Shrinking Again

The managed gold combined net positions plunged 36% to 45,072 contracts during the week ending 4 November, with the long positions declining 12% and the short positions rising 13.8%. The short positions are approaching the all-time high in September 2014. The SPDR Gold Trust holdings have also declined to the lowest level since August 2008. With the Dollar Index at a four-year high, the U.S. stocks reaching new highs, disinflation occurring in Europe and Asia, and commodity prices plunging, the gold prices have a hard time rallying. On the other hand, Barclays noted that China’s physical demand has responded to the lower prices as the monthly rolling average volume has stayed high.

Source: FXstreet